Artificial Intelligence And The Rising Concerns of Income Inequality
BY MANSI JHA/ AUGUST 26, 2023
The rapid emergence of artificial intelligence is widening the skill gap in the workforce and it is poised to modify the traditional employment landscapes leading to the mounting risks of income inequality worldwide.
n this era of emerging new technologies entailing Big data, Robotics, Artificial Intelligence, and Machine Learning, there is an anticipation that these innovations will transform occupational processes and give rise to one of the most disruptive revolutions of all time. The downsides of AI are outweighing its benefits as technology breakthroughs raise income inequality and employment displacement. In this article, we explore the impact of artificial intelligence on the economy and how these challenges are weakening the progress of developing nations.
I
Artificial intelligence is the simulation of human brain exercise by computers and high-tech machines. AI is based on the foundations of specialised hardware and software for training in machine learning algorithms. According to Britannica, “Artificial intelligence is the ability of a computer or a robot controlled by a computer to do tasks that are usually done by humans because they require human intelligence and discernment.” The basic principle of AI is to replicate human activities using technology.
AI is being hailed for its efficiency improvement ability and faster decision-making capacity.
AI is being hailed for its efficiency improvement ability and faster decision-making capacity. Every business focuses on leveraging AI to optimise its operational efficiency. Many companies rely on robots and automation for the performance of repetitive and mundane tasks. According to Jungle Scout, 66% of Amazon’s sellers are already using AI for carrying out tasks like inventory management, order tracking, customer engagements, etc. With the help of AI, employee productivity can be significantly improved. It can also detect skill gaps, and the lessons can be customised for increasing the employee’s performance. These are some of the advantages accrued from AI. However, artificial intelligence also comes with a range of drawbacks.
Due to the influence of AI substantial transformations can be observed in the domains of business models and labour productivity, along with matters involving privacy and ethics. One of the most deep-rooted implications of AI is going to be ‘job displacement’. As per a recently released report by Goldman Sachs, it is predicted that AI could potentially displace 300 million jobs globally. The discovery of robots and automation has already led to the elimination of various forms of employment viz., transportation and storage workers, stock traders, accountants, teachers, customer service agents, etc. Earlier, AI was responsible for the replacement of just repetitive and mundane tasks, but with time it has been able to pursue more complex and creative jobs. For instance, the recent introduction of ChatGPT, the language model-based chatbot developed by OpenAI, the AI’s dominance over creative jobs like coding, content writing, media development etc. will give rise to severe human replacement. This leaves little scope for humans to rule over the employment landscape and also showcases that AI can be subjected to constant transformations, which can lead to several jobs getting redundant in the near future.
Pictured: Illustration by unknown via Pinterest
The recent introduction of ChatGPT, the language model-based chatbot developed by OpenAI, the AI’s dominance over creative jobs like coding, content writing, media development etc. will give rise to severe human replacement.
Job displacements as a result of the proliferating automation industry have led to widespread income inequality between the rich and the poor. The IMF claims that the global income inequality scenario is abysmal, as the richest 10% constitute a 52% share of the global income and the poorest of the poor get just 8.5% of the share. These richest people are the technology pioneers who own almost half of the wealth possessed by the entire humanity. Nowadays, many businesses find investing in technology more profitable than incurring the cost of labour. Large number of employees are laid off in one go, and artificial intelligence replaces them. Economist Erik Brynjolfsson has said, “My reading of the data is that technology is the main driver of the recent increases in inequality. It’s the biggest factor.” AI is weakening the labour institutions creating wage stagnation and reduction in the relative income going to labour.
Artificial intelligence has evolved into a workforce
complement to skilled labour. Those who are skilled in
using complex AI are on the other side of the spectrum
whereas the low-skilled workers are facing the chasm of
AI transformations heavily. During the early stages of
industrialisation, physical labour was directly related to
low-skilled work. The demand for low-skilled labour was
skyrocketing, as a result of which the capitalists found it
unprofitable to develop technologies. However by the
1980s, the scenario changed, and the labour market
moved towards accumulating highly skilled workers,
who were capable of using newly discovered machinery,
causing a rise in income gap between the high and
low-skilled labour. This phenomenon is known as the
capital-skill complementarity hypothesis. Hence, income inequality became synonymous with capital skill complementarity. A similar trend can be noticed in today’s time, when artificial intelligence demands highly skilled labour. According to Beroe Inc., around 50% of the low-skilled work globally will be taken over by AI in the next 5-7 years aggravating the income inequality even further. Both AI and Machine learning are destined to redesign the labour market by replacing low-skilled work with high-skilled work.
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Pictured: Illustration by unknown via pinterest
Both AI and Machine learning are destined to redesign the labour market by replacing low-skilled work with high-skilled work.
In order to view the rising income inequality from a macro perspective, evaluation of the widening income gap between developed and developing nations becomes crucial. In richer countries, automation is already well established whereas, the developing nations are still largely dependent on labour-intensive techniques of production. To compete with the growing dominance of artificial intelligence it is imperative for developing countries to invest in enhancing the productivity and skill levels of their employees. The goal should be to shift the focus from the number of jobs to factors like their quality, chances for mobility, access to education, and available opportunities. This will ensure that their workforce is complemented, and not replaced by AI.
Moreover, the IMF reported that the implications of AI can be estimated based on share in production, investment flows, and terms of trade. When the difference in production share was evaluated, it was discovered that since the advanced nations provide higher wages to their labour, their productivity as a result has also been higher. This is not the case in developing nations as there is minimal AI penetration, making the labour productivity way less than the advanced ones. Similarly, under the criteria of investment flows, as the robot productivity increased with time, the developed nations became capable of investing more capital in the robots. As a result, the GDP of the developing nations decreased relative to that of developed states. And lastly, when the terms of trade implications were assessed it was found that developing economies are likely to specialise in sectors that rely more on unskilled labour. Therefore, while looking at the aforementioned capital-skill complementarity hypothesis, there might emerge a permanent decline in the trade of the developing nations due to the AI revolution.
The dependency on AI is expected to rise exponentially in the coming years as well. This calls for some immediate actions to be taken by the companies to control the consequences of AI. Today, Artificial intelligence is highly prone to misuse and internal cheating. “We are currently at more risk of AI doing things wrong than them doing the wrong things” (Joshi, 2020). Companies must promote the ethical use of AI through the collective activism of individuals to make it safer. Recently, Google pledged not to use AI for military applications. Constructive steps like these can bring about significant changes concerning the ethics of AI. It is equally important for the government to regulate the usage of AI. Policymakers should act to mitigate the risks of job displacement by introducing skill development programmes to improve the conditions of low-skilled workers.
Policymakers should act to mitigate the risks of job displacement by introducing skill development programmes to improve the conditions of low-skilled workers.
Further, whenever new technologies were developed in the past it arguably affected the labour market. From the introduction of mobile phones having an impact on the jobs of landline telephone operators to the emergence of robots taking over the assembly line worker's jobs, every technological advancement has created an uproar in the employment arena. Therefore, it is believed that the threats imposed by AI will be considerably greater as it has already claimed over 1.7 million jobs.
In conclusion, the difficulties presented by AI must be accurately and completely diagnosed. A report published by Pricewater house Coopers mentions, “AI, robotics and other forms of smart automation have the potential to bring great economic benefits, contributing up to $15 trillion to global GDP by 2030.” On the contrary, it can also slash millions of jobs. Thus, it’s a matter of great concern, as it will leave people behind who are averse to the changing landscape of automation in today’s times. If we consider the negative implications of AI involving lost wages, rising income inequality and disrupted growth, it is high time that this issue is discussed seriously before it's too late.
Pictured: Illustration by unknown via pinterest
Nobel Laureate Angus Deaton quotes, “Many of the great episodes of human progress, including those that are usually described as being entirely good, have left behind them a legacy of inequality”. We cannot measure the consequences that the economies around the globe will experience, as there exists both boon and bane possibilities under AI, but the inequality that will occur out of automation will require government intervention. In order to achieve this, policymakers will have to use AI productivity to sustain society and increase equity in the overall standard of living of people in different income groups.
Keywords
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Artificial intelligence, employee productivity, unemployment, job displacement, income inequality, capital-skill complementerity, labour market, technological advancement
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References
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Hadley, J. (2020). Artificial Intelligence and Rising Inequality. Rutgers, The State University of New Jersey.
Alonso, C., Kothari, S. & Rehman, S. (2020, December 2). How Artificial Intelligence Could Widen the Gap Between Rich and Poor Nations. IMF blog. https://www.imf.org/en/Blogs/Articles/2020/12/02/blog-how-artificial-intelligence-could-widen-the-gap-between-rich-and-poor-nations
Kelly, J. (2021, June 18). Artificial Intelligence Has Caused A 50% To 70% Decrease In Wages—Creating Income Inequality And Threatening Millions Of Jobs. Forbes. https://www.forbes.com/sites/jackkelly/2021/06/18/artificial-intelligence-has-caused--50-to-70-decrease-in-wages-creating-income-inequality-and-threatening-millions-of-jobs/
Inequality – Bridging the Divide. United Nations.
https://www.un.org/en/un75/inequality-bridging-divide
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https://futureoflife.org/ai/shared-prosperity-principle/
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Petropoulos, G. & Barkelmans, S. Artificial intelligence’s great impact on low and middle-skilled jobs. Bruegel.
https://www.bruegel.org/blog-post/artificial-intelligences-great-impact-low-and-middle-skilled-jobs
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